Does Disney's Fox Deal Make It a Legit Netflix Competitor?

Disney DIS just announced its new $70 billion offer for an array of 21st Century Fox FOXA assets, outbidding both Comcast’s CMCSA unsolicited deal and its initial offer. Disney’s bid represents a large amount of money even for the historic entertainment giant, so let’s take a quick look at the latest deal before we dive into why Disney wants it so badly.

Fox Overview

Fox and Disney entered into a definitive, $52.4 billion all-stock agreement in December. Last week, Comcast offered roughly $65 billion in an all-cash offer to acquire the same Fox assets.

Disney and Comcast both plan to buy Twentieth Century Fox film and TV studios; cable networks such as FX and regional sports channels; two major satellite distributors—Sky in Europe and Star in India—and Fox’s one-third stake in Hulu, which would give Disney controlling interest in the streaming company. Notably left out of any potential deal are Fox News, Fox Sports 1, and the Fox broadcast network.

A Fox deal could present a multitude of legal hurdles. But some of the initial regulatory concerns that many cited as possibly holding up any Fox purchase seem much less relevant after a federal judge approved the AT&T T and Time Warner TWX merger.

Why It Matters

Disney has become less dominant in recent years due to the rise of streaming services, such as Netflix NFLX and Amazon AMZN Prime, as well as the proliferation of cord-cutting. But the company is in a better place than some might think based on some of the more surface level stories about the imminent demise of once-almighty ESPN (also read: Why You Should Buy Disney Stock Right Now).

ESPN is still a live rights power, with NFL, college football, and the NBA all under its umbrella. Grabbing Fox’s hugely popular regional sports networks—which often get great ratings for NBA and MLB, especially compared to the rest of cable—would be a huge win for Disney in what will likely become some form of a standalone streaming version of ESPN, far superior to the currently available ESPN+ service. National and regional live sports programming will only become more valuable to advertisers in an age where hardly anything else needs to be watched live.

Meanwhile, Disney would be able to utilize Fox’s TV and movie studios to bolster its cable, movie, and soon enough streaming offerings, when the company introduces its standalone Disney streaming service in late 2019. The company would absorb FX Networks, National Geographic, as well as key franchises such as Avatar, X-Men, and the Fantastic Four—which Disney would reunite with their superhero counterparts.

Disney’s Marvel franchise has grossed more than $16 billion at the box office, in a pretty short amount of time. And the company, which initially thought of ending the Marvel Cinematic Universe soon, has no plans to stop now. Disney also owns Pixar and Lucasfilm’s Star War franchise, as well as its own studio that has jumped headfirst into live action remakes of many of its cartoon hits.

Bottom Line

The idea here is simple: Disney wants to add to its content offerings as it races to adapt to the new age of subscription-based streaming and fight off Netflix.

Disney’s streaming service is likely to include its library of movie and TV content, along with Fox’s, and a slew of new original programming made exclusively for the platform. “We're producing right now content for it, original content that is Pixar branded, Marvel branded, Star Wars branded, and Disney branded,” CEO Bob Iger said on a recent Disney earnings call.

There is talk that Netflix’s offerings will be superior to a stand-alone Disney platform. But investors should ask themselves a simple question: why?  Five years ago Netflix didn’t even offer original content, they simply spent billions to roll out movies and shows in anticipation of Disney and other media houses pulling their content.  

Disney could also easily adapt to Netflix’s model of offering a wide range of small-budget indie movies and shows along with its blockbusters and family-friendly Disney and Pixar movies, which are also released in theaters—something that isn’t likely to lose its appeal altogether. Disney simply has more money, more resources, and more big-name brands than Netflix.

The company also has live content offerings through ESPN and ABC, something Netflix doesn't. So just imagine how attractive a streaming platform would be that offered live regional sports, national ESPN games, news, as well as new Marvel, Pixar, and Star Wars shows, new original streaming content—outside of Disney’s usual wheelhouse—all its new Fox offerings, and its library of movies?

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
Comcast Corporation (CMCSA) : Free Stock Analysis Report
 
Twenty-First Century Fox, Inc. (FOXA) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research